Common Sense Investing in 10 Easy Lessons

The BogleheadsSM community is well-known for the generous and helpful contributions made by its diverse membership. Contributors range from John C. Bogle, the founder of Vanguard, to authors and columnists (Bill Bernstein, Rick Ferri, Larry Swedroe, Allan Roth, Michael LeBoeuf, Taylor Larimore, Laura Dogu and The Bogleheads’ Guides authors), to financial advisors, doctors, attorneys, CPAs, engineers, teachers and a host of other very talented individual investors.

In our last column, we discussed the contributions made to the Bogleheads wiki by a number of dedicated editors.

In this column, I’d like to turn the spotlight on one of those talented wiki editors, Rick Van Ness (aka “stickman”). Rick produced a series of short videos that introduce 10 Boglehead principles of common sense investing.

Why Videos?

﻿Rick explained that some of the real power of short videos is to communicate a lot of information persuasively and quickly and added that it's an ideal tool to introduce new topics to non-experts. He said that while the videos are no substitute for the depth of discussion on the Boglehead forum, they might be helpful to the majority of adults who don't think about this very much, and that may be more than 98% of adults. "I think it can be life-changing when people are ready to receive this message about common sense investing.”, Rick stated.

Background

In our discussion with Rick, I asked him to give readers some idea of how he got started with the videos and what motivated him to make this series. I asked him where the idea for making these videos originated. Here’s his reply:

“All this originated from my giving free lunchtime seminars at the University of Washington and Seattle University. Then I realized that I could reach many more people leveraging online videos.

I converted a room in my house to a movie studio, painted a wall for a "green screen" and Voila! ... a magical environment to demystify topics with very short videos.

I've always admired simple, well-done explanations. I was overjoyed to discover that Jack Bogle has that simple, elegant writing style (e.g. The Little Book of Common Sense Investing) and shares my values (e.g. his recent book, Enough).

YouTube is a HUGE resource of quality how-to videos. It blows my mind when I have a small technical question about the best way to do some video editing and I wind up watching a short YouTube demonstration from some 12 year old that has had 50,000 views! The size of the audience is staggering! The quality of the videos is all across the board, but a large portion of it is some very high quality stuff. Millions watch videos about hyperinflation and investing in gold. A paltry few watch videos about sensible investing.”

Rick continued: “This is where I want to make a contribution. It feels like a nice marriage of my technical and finance backgrounds. It appeals to my need to be creative. I definitely feel a sense of pride when I can explain something complicated (like combining uncorrelated assets to reduce risk) in an interesting way and do it in less than five minutes.

I also don't need to be one of the experts on the Bogleheads forum. I am tremendously indebted to them, because I learned from these authors and sharpened my understanding with the give-and-take between the forum participants. What a collection of generous, knowledgeable, and polite individuals! It's so incredible, because even behind the scenes people are contributing, moderating, and administering this organization as a public service. I'm so proud to be a part of it in even my modest little way. And as someone who retired at 50, what could be a more fun way to contribute back to society? I'm constantly learning. And right now, what I'm very interested in is helping to show young working Americans a path to reach their dreams -- the stuff I wish someone told me when I was 25.”

Rick reminded us of this Buddhist saying that rings so true in this case: “When the student is ready, a teacher will appear."

Finally, he summed our conversation up by saying “I think all of us can remember when we recognized wisdom that changed our lives. My first experience dates way back to something Andrew Tobias wrote. ("A penny saved is two pennies earned.") That's what started me saving. Only much later did I discover the wisdom so elegantly expressed by Jack Bogle. These are life changing experiences. We remember good teachers.”

The Bogleheads follow a small number of simple investment principles that have been shown over time to produce the best results. These ideas come from the investing philosophy of Vanguard-founder John C. Bogle. Some of these ideas are distilled from Nobel prize-winning financial economics research on topics like Modern Portfolio Theory and the Capital Asset Pricing Model, but they are really very easy to understand and to implement, and they work. In fact, the basis of all of these principles is the idea that successful investing is not a complicated process, and can be accomplished by anyone with a small amount of effort.

These short entertaining video segments give investors the big picture and an orientation to the more detailed discussions on the wiki site and in the Books: Recommendations and Reviews section of the Bogleheads wiki.

Rule #1: Develop a workable plan - Your investment planning begins with some ballpark estimates of what kind of money you might need to accomplish your dreams. For many this seems formidable, so this video includes some popular guidelines that have helped many succeed in saving for these goals.

Rule #2: Invest early and often - This short video illustrates the miracle of compound interest and the importance of starting to save early with a simple example of two young college graduates.

Rule #4: Diversify! - It's not enough to own stocks of hundreds of companies (although easy with a mutual fund). Learn about the "magic" benefits of poorly correlated investments--most notably, owning both stocks and bonds.

Rule #5: Never try to time the market - The vast majority of investors earn less than the market due to two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market.

Rule #9: Keep it simple - All things being equal, choose the simple path. You'll increase your chance of success, and have more time to enjoy your life. See how to bring all these points together into a simple written plan.

Rule#10: Stay the course - Let there be no mistake: you are only human and you will face great temptation to change your plan. Your best defense (against yourself!) is to pull out your written plan and review it.

Mel Lindauer is a Forbes.com columnist. His work appears in the bi-weekly "The Bogleheads' View" column. As one of the leaders of the Boglehead community, he helped build both the old Morningstar Vanguard Diehards forum and the successor Bogleheads.org investing forum. He's ...